Argentina’s President Javier Milei has lifted the exchange rate cap, allowing a floating currency regime and increased access to foreign currency. This move, backed by significant IMF loans, faces concerns over potential inflation and economic instability. Expert opinions vary regarding its long-term success and risks.
Argentine President Javier Milei has made a significant decision to lift the exchange rate cap, which may result in a sudden devaluation of the Argentine peso amidst rising inflation. This policy change will allow Argentines to access foreign currency more freely starting next week. Under the new regime, a floating exchange rate will be implemented without central bank intervention, provided the rate remains below 1,400 pesos per dollar.
With soaring expectations for a devaluation spurred by increased demand for foreign currency, the Argentine central bank faced significant challenges, having lost approximately $4.9 billion in gross reserves in 2025. As of Friday, the bank’s reserves had fallen to $24.7 billion, with private estimates suggesting net reserves could be negative $9.5 billion. The central bank’s struggle was evident as it lost $398 million in a single day trying to stabilize the exchange rate.
The agreement with the International Monetary Fund is anticipated to strengthen reserves. Argentina is set to receive $20 billion in IMF loans, in addition to $12 billion from the World Bank and $10 billion from the Inter-American Development Bank, enhancing financial relief. This new approach may lead to fluctuations in the exchange rate, with expectations of increased inflation as the official rate adjusts from the current price of 1,097.50 pesos per dollar.
Economist Leonardo Piazza noted the potential inflation risk, suggesting that the government must provide increased social assistance in response to expected food inflation. While some experts, like Piazza, view this bold plan as potentially effective for economic normalization and investment attraction, others, such as Pablo Tigani, criticize it for being reckless and fear the economic reality may deteriorate due to unregulated currency flows and impending devaluation.
In conclusion, Argentina’s recent economic strategy, led by President Javier Milei, involves lifting the exchange rate cap to facilitate foreign currency access, potentially culminating in a floating exchange rate. Financial relief is anticipated through significant IMF and international loans, however, this approach carries risks of inflation and economic instability. Expert opinions differ, with some viewing the move as a necessary bold step, while others warn of dire economic consequences.
Original Source: efe.com
